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Part three, major influences on real estate development, presents one chapter on
each of four topics: real property taxation, land use controls, real estate
developments procedures, and required government report
In past four, real estate investment : the economics of the parcel, four chapters
bring together all the material previously presented in order to demonstrate how
the principles of real estate economics can be used to analyze a specific property
CHAPTER 2
The study of real estate economics can be approached from the mathematical view,
called econometrics or from the nonmathematical perspective , using verbal
descriptions. Econometrics combines economics, mathematics , and statistics to
express economic relationships in terms of mathematical equatios. The verbal
approach uses words rather than equations to describe economic relationships.
According to economists, there are four essential resources, called factors of
production, that are needed to produce goods and services ; land, labor, capital and
entrepreneurship
Factors of Production
1.
Land refers to all natural resources trees, minerals, and water as well as the
surface of the earth
2. Labor is the human effort needed to transformraw materials into finished
products or to perform services
3. Capital is any manufactured instrument used to increase production, such as
machinery, tools, and buildings
4. Enterepreneurship is the assembling of the other factors of production in a
systematic manner to produce goods or services
Rent, Wages, Interest, Profit and Income
In a capitalistic economy, private individuals own the factors of production, and they
insist upon payment for the use of their property
Rents, wages, interest, and profits constitute income. If you are like most people,
you spend a major portion of our income buying goods and services
The Circular Flow of the Economy
The outer dotted lines show the flow of income. As you see, the individual is both
buyer and seller. He or she sells land, labor, or capital in the resource market and
buys goods and services in the product market. Businesses buy land, labor, and
capital in the resoaurce market and sell goods and services in the product market.
A market is defined as a place where buyers and sellers meet to bargain and
exchange items of value at negotiated prices
The characteristics of a market can influence the level of output and the prices paid
for goods and services. Markets can be broken down into two board categories :
markets with perfect competition and markets with imperfect competition
When conditions of perfect competition prevail in a market, there are many buyers
and sellers bidding against each other for available goods and services. No one
buyer or seller can exert influence over the market or control prices. The goods or
services being offered are similar enough so that the buyer will select the lowestpriced offering. The bargaining between buyers and sellers established prices.
Prices in a market economy are determined by the interaction of buyers and sellers
as they compete against one another for goods and services In the marketplace.
The total quantity that buyers are willing to buy at a given time at certain prices is
called demand. The total quantity that sellers are willing to sell at a given time at
certain prices is called supply
People must be carefull not to confuse desire oe need with demand. Demand is
desire or need coupled with the ability and the willingness to spend
As stated earlier, economists do tend to agree on some things. One of these
common points is the existence of a few economic laws. An important law is the law
of demand, which states : the lower the price, the more consumers will buy. The
higher the price, the less they will buy
Some of the causes of a change or shift in demand are listed below:
1. A increase or decrease in population. Demand rises or falls with population :
as the number of people increases, demand increase ; as the number of
people declines, demand declines.
2. An increase or decrease in per capita income. Demand also rises and falls
with the level of per capita income : the higher the level of income, the
greater the demand; the lower the level of income, the smaller the demand
3. Changes in consumer taste and substitute products
4. The amount of credit available
5. The effect of advertising
Supply, like demand, reflects changing circumstances. Some of the causes of a
change or shift in suppy are:
1. Changes in the cost of the factors of production
2. A change in demand for one product can cause a change in supply of another
product
3. Business anticipation of future prices and profits can change the amount of
goods supplied